“When a man with money meets a man with experience, the man with experience leaves with money and the man with money leaves with experience.”

Saturday, August 07, 2010

Valley Gold

"Some debts are fun when you are acquiring them, but none are fun when you set about retiring them." (Ogden Nash)

The club today published more details of the exact terms of the deal struck with Richard Murray a couple of weeks ago.

The situation can be summarised as follows:

- the club received an offer in Aug 2009 but due diligence revealed the consortium could not provide sufficient proof of funds (we can merely speculate who was bidding);

- the equity in the holding company is now worthless (or worth £2 to be precise), and will be sold to entities controlled by Richard Murray and family;

- the name of the plc will change to 'CA Plc';

- the directors that subscribed to the £14.5m convertible bond issue have agreed to convert the debt into the above worthless equity, thus wiping it out;

- it is proposed that the intercompany debt (from the subsidiaries to the plc) be cancelled;

- separate from the above convertible bonds, there is also £7m of outstanding 'directors loans' which will now be transferred ('novated') to the subsidiaries;

- these loans (in addition to further £3m debts due to HSBC/Lombard) arose from a £10m refinancing in Sep 2009 following the collapse of the above negotiations with the bidding consortium;

- no principal payments will be due on the above directors' loans until the club returns to the Premiership, and only interest will be due upon promotion to the Championship;

- the continued support of HSBC/Lombard requires that the above proposals go ahead.

So in short, the Directors (including Murray incidentally) have taken a huge and generous write-down on the convertible debt, although in fairness they were highly unlikely ever to be made remotely whole on their debts.

I think it is fair to say that none of the Directors involved are in the 'super rich' category, so this is a meaningful gesture for the wellbeing of the club.

The waiver of the intercompany debt is discussed at length in the proposal, but I do not consider it to be anything more than a procedural accounting entry.

After all, the 30 June 2009 accounts revealed that £35m of intercompany debts were waived in that year alone, yet no fuss was made about this.

The waiver will just ensure that any future cashflows from the two subsidiaries will solely benefit the new debt and equity holders, and not be used to begin to pay back the debt to the holding company.

As mentioned in my previous post on this topic, the above proposal adds considerable clarity but is only a mere stepping stone towards genuine financial security. More results and gutsy performances like today's will help.